The building society said that the fall represented a "sharp slowing" and dragged the quartely drop in prices - considered a less volatile gauge of the market - down 1.5pc. As recently as October prices over three-months had grown 1.5pc, signalling how rapidly the situation has deteriorated.

The average house price in the UK fell to £179,110 in March, from £179,358 in February.

Nationwide and some economists now think that because conditions in the financial markets worsened in March, the Bank of England will bring forward plans for a rate cut to April. Many had expected a cut in May, but the near-collapse of Bear Stearns, the increasing likelihood of recession in the US, and dwindling consumer confidence in the UK have increased the likelihood of an earlier cut.

Related Articles

Nationwide said that it was revising its 2008 house price forecasts down because of the recent escalation of the credit crunch.

Fionnuala Earley, Nationwide's chief economist said: "The outlook for UK house prices is clearly more downbeat than at the time of our November forecast. Some of the downside risks we identified then have become a reality - most notably the continued turmoil in the financial markets."

Howard Archer, chief economist at Global Insight, said that tighter lending criteria and an expectation from buyers and sellers that house prices will fall sharply, could prompt a sharp correction to the housing market.

The news that UK prices continue to fall is a further blow to homeowners whose ability to get cheaper mortgages are dwindling as lenders tighten criteria.

Yesterday Nationwide said it was withdrawing some of its best deals from the mortgage market. It said it would raise the rates on all fixed-rate products by 0.2pc and increase some tracker mortgages by up to 0.57pc.